An Opportunity to Really Fix Social Security

The White House has put out the word that President Obama’s budget will propose changing the way government adjusts benefits for Social Security and other programs (as well as the income tax).

Liberal Social Security advocates are furious. By shifting to a measure called the chained Consumer Price Index, the retirement system would boost benefits by a bit less each year than under the current formula, a gradual change whose bite would grow over time. These advocates are vowing to kill the idea dead. This is something of a conversation-stopper.

Here’s a better idea: Use this technical change as an opportunity to redesign the retirement program. Most Social Security experts, no matter their political persuasion, know this must be done. Why not do it now?

While there may be broad disagreement on the solutions, there is a fairly strong consensus on the nature of the problem. Social Security has done a remarkable job of reducing poverty among the elderly. But its design is badly outdated, better reflecting the nature of work and family structure in 1935 than in 2013. And it has insufficient resources to pay all promised future benefits.

Here are just four of its design problems:

Benefits are insufficient for long-time low-wage workers, never-married and divorced women, and many widows.

Benefits are insufficient for the very old, who often face significant long-term care needs not covered by Medicare.

Social Security encourages many people to stop working at age 62 when they could--and probably should—work longer.

Social Security Disability is both a policy and administrative catastrophe. It encourages fraud and discourages people who could work from doing so.

Overall, Social Security provides about 37 percent of all income for Americans 65 and older. For those in the bottom 20 percent of incomes, it accounts for nearly 85 percent. Yet the Center for Retirement Research at Boston College estimates that even with Social Security, 61 percent of low-income households were at risk in 2010 of not maintaining their (already low) standard of living once they turned 65. Why not do something about that?

There are literally dozens of ways to fix the problems of financing and benefit adequacy.  Melissa Favreault and her colleagues at Urban Institute’s Retirement Policy Program have described many of these ideas and their consequences:

There are the bumper-sticker solutions such as chained CPI or raising the amount of wages subject to the payroll tax. And there are more complicated ideas such as creating a new minimum benefit for poor seniors or reforming the Supplementary Security Income (SSI) program. They all deserve a good debate and some action.

Bob Greenstein at the Center on Budget and Policy Priorities suggests bundling the chained CPI inflation adjustment with protections for very poor and very old seniors. And the White House hints Obama may do that. But the discussion should not stop there.

The curious thing is that progressives support many of these changes. But they don’t want to engage in a Social Security debate at all. They see Obama’s offer as a one-sided concession on a line-in-the-sand issue.  And, some fear it will open the door to private accounts—an approach many on the left simply hate.

There are even private account solutions many Democrats would embrace, such as add-on savings to supplement traditional benefits. But let’s say Obama and Congress really don’t want to go there. They could still take some big steps to modernize an important program that does not work nearly as well as it should.

Obama has opened the door. Why not walk though?